COBRA Subsidy and Unemployment Benefits Extended by the TEA

Last Updated: March 29, 2010

On Tuesday, March 2, 2010, President Obama signed the Temporary Extension Act of 2010 (TEA) into law. After an initial review of this legislation, Vantaggio reported the following two important employment provisions: an extension and expansion of the ARRA COBRA subsidy and an extension of certain ARRA unemployment provisions – both of which were due to expire on December 31, 2009. The Department of Defense Appropriations Act of 2010 pushed out the date for these benefits to February 28, 2010. The TEA took things a step further and extended the subsidy to involuntary terminations that occur through

March 31, 2010 and the unemployment insurance provisions through April 5, 2010. However, after an in-depth review of the TEA, we have discovered that the impact on ARRA is more significant than first reported.

Background

As you may recall, ARRA created a federal subsidy for certain individuals losing their group health insurance who elected COBRA continuation coverage (see Vantaggio’s articleCOBRA-Subsidy Created by ARRA. Assistance Eligible Individuals (AEIs) whose employment was terminated involuntarily between September 1, 2008 and December 31, 2009 could receive a subsidy in the amount of 65% of their COBRA premium for a period of 9 months. The Department of Defense Appropriations Act of 2010 included a provision extending this federal COBRA premium subsidy to involuntary terminations through February 28, 2010 and provided an additional 6 months of subsidy on top of the original 9 for a total of 15 months. Additionally, certain ARRA unemployment benefits that were due to begin phasing out by the end of 2009 were extended through the first two months of 2010.

New Subsidy Rules

Although not impacting the maximum period of subsidy eligibility (currently 15 months), the TEA makes an additional important change to COBRA. It expands the definition of AEIs to include an employee who lost his/her medical benefits as a result of a reduction in hours on or after September 1, 2008 and then experiences an involuntary termination between March 2 and March 31, 2010. The premium subsidy for these individuals would, however, only be available for any periods of coverage after March 2, 2010. Additionally, the maximum period of COBRA coverage would still be counted from when the coverage was originally lost due to the reduction in hours. For example, if an employee’s hours were reduced in early 2009 and the person elected COBRA at the time, he/she would not have been eligible for the subsidy due to the fact that there was no involuntary termination at the time. If the person is still on COBRA, he/she can now get the subsidy for periods of coverage following March 2, 2010. As most health insurance plans run on a calendar month basis, this would mean that this person could get the subsidy beginning with the month of April. If this same person had NOT elected COBRA in early 2009 when his/her hours were reduced (or if he/she did elect COBRA but then later discontinued the coverage), the TEA will now provide for a new election period allowing the person to get back on COBRA and to start claiming the subsidy. However, the maximum period of COBRA coverage will be measured back from the original date of loss of coverage due to the reduction in hours. The person will not be required to pay any retroactive COBRA premiums for periods during which he/she was not covered, and any periods of non-coverage will not count against the 63-day lapse in coverage rules for purposes of determining pre-existing condition exclusions according to HIPAA.

More Notice Requirements

The TEA requires that any individuals terminated on March 1 or March 2, 2010 who received COBRA notices that did not contain accurate subsidy information now be notified of the availability of the subsidies for terminations through March 31, 2010. Additionally, anyone who experiences an involuntary termination between March 2 and March 31 who previously lost coverage due to a reduction in hours on or after September 1, 2008, must be notified within 60 days of the termination of employment of the availability of the subsidy and his/her new election rights. It’s important to remember that some of these individuals will include employees who are not covered by the company’s health plan at the time of his/her termination.

What is an Involuntary Termination?

The TEA also provides some additional guidance to employers who have been faced with sometimes making a difficult judgment call about whether or not a particular situation would be considered an involuntary termination. What if the employer reduces an employee’s hours, and the employee resigns as a result? What if an employee elects to resign in lieu of being terminated? The TEA clarifies that if an employer makes a reasonable interpretation of ARRA (including its amendments and the guidance issued since), maintains supporting documentation (including a written attestation by the employer), then the termination will be considered an “involuntary termination.” This is not a free-pass for employers, as the DOL could still overturn an employer’s decision, but it should provide some level of comfort provided that the employer makes a good-faith, reasonable attempt to comply.

Other TEA Provisions

The TEA also adds specific penalties for employers and insurers who fail to follow a DOL determination following review of a subsidy denial. These penalties can include civil action and monetary penalties of up to $110 per day for failure to comply. The Act also provides clarification about the “transition period” which was a term first used in the DOD Act and refers to the period of time during which an individual’s original 9-month subsidy expired before the subsidy was increased to 15 months. The TEA clarifies that these individuals must make their COBRA payments by the latest of 60 days from the enactment of the DOD Act (December 19, 2009); 30 days after receipt of the notice required by the DOD Act; or the end of the otherwise applicable grace period.

We have been told that the act was named the “Temporary Extension Act” quite intentionally. It is meant to push the current benefits out for one more month, giving our federal legislature more time to consider several other bills that have been presented which propose to make more permanent changes to COBRA administration and the availability of a subsidy.

As the new law takes effect immediately and is retroactive in nature, employers are encouraged to revisit the following:

Notify anyone who was an AEI at any time in March 2010 of this new provision (be especially cautious of anyone who experienced an involuntary termination on March 1 or March 2, 2010¹ prior to the signing of the TEA).

Notify anyone who lost coverage due to a reduction in hours after September 1, 2009 and who later experiences an involuntary termination between March 2 and March 31, 2010 of the new subsidy provisions and new election period.

Update ALL existing COBRA notices to include the new provisions:» General (Initial) Notice;» Election (Qualifying Event) Notice;» Summary of the COBRA Premium Reduction Provisions under ARRA;» Request for Treatment as an Assistance Eligible Employee.

Develop and send any newly required notices:» Notice of New Election Period » Supplemental Information Notice » Notice of Extended Election Period

Communicate with your insurance carrier and Third Party COBRA Administrator to be sure that all new notice requirements and special election opportunities are being met. REMEMBER – at the end of the day, regardless of who is doing the administration, the employer is responsible for and liable for COBRA compliance.

Due to the costly fines and penalties that can be assessed and the significant liability for the employer in the event someone does not get the appropriate coverage, we urge our clients to take COBRA administration very seriously. You should review and update all COBRA procedures and documents on no less than an annual basis, or more frequently as the law changes.If you do not have a third-party administrator (TPA) for COBRA, please contact Vantaggio for a recommendation. Although we believe that a competent TPA is the best course of action, for our clients who elect to keep this function in house, we have developed a self-administration kit. Please click here for more details: Vantaggio HR’s COBRA Notice Kit.

In the unlikely event that someone was involuntarily terminated on March 1 or 2, 2010, received COBRA information that did not reference that the subsidy would be available for AEIs through March 31, 2010, and subsequently declined coverage or elected and then declined coverage, he/she would need to be provided with the required information and a re-election opportunity. Most likely, as notice requirements are not typically sent out this quickly and since the vast majority of medical insurance plans run on a calendar month basis, not enough time would probably have transpired for individuals terminated on March 1 or 2, 2010 for all of the preceding steps to have occurred before the TEA was signed on March 2, 2010.